But what of the implications for British Airways? Shares in BA touched 170p at one stage yesterday, the highest level for nearly 12 months. The stock has all but doubled since the UK stock market hit its recent nadir on March 12 and that makes it the eleventh best-performing share in the FTSE 350 since that date.

In general the multibillion-pound Emirates order renews confidence in the prospects for the world economy. In particular the chances are that people will travel more. Financial results published by BA in the middle of May contained evidence suggesting that the company was making tangible progress in its campaigns to operate more efficiently and to meet the problems posed by budget airlines.

But while some things are finally going in BA’s favour it still faces big challenges. The Emirates order may underpin confidence in the airline industry in a broad sense but it is harder to see how BA will benefit directly. Emirates is investing heavily in new aircraft as part of a strategy being followed by its home state to encourage tourists to Dubai. BA, however, most needs to see a recovery in demand for transatlantic air traffic, and that may shift in ways that are quite separate from the way the appetite to visit the Middle East moves. Travellers may not even come predominantly from this part of the globe.

Meanwhile, where there is crossover between BA and Emirates, or any other airline that steps up investment in new aircraft, BA may not automatically benefit. BA cannot afford to buy new aircraft and may suffer because its fleet is older.

In rising to meet the challenge posed by budget airlines BA has attracted increased numbers of customers and made better use of its capacity. But it has also had to reduce fares on the routes and that stifles the speed at which investors can expect to see profits recover. In addition, BA is a company with one of the bigger pension funding problems. Indeed the recent share price recovery may be better explained by the fact that equity markets in general are looking more robust and that alleviates some of the pension funding problems. The shares are unattractive.

Halma

IT IS becoming increasingly difficult to see why Halma, the engineering company, deserves to see its shares sit on a premium rating. The prospective p/e ratio on the stock is 14.5, whereas the average, weighted by market capitalisation, is 10.9. The unweighted sector average is 8.5.

Shares in companies that have obvious growth prospects are the ones that deserve to enjoy premium ratings. Yet financial results posted yesterday show that Halma suffered a profits fall in the year to March 29. Moreover, the fall would have been noticeably more severe were it not for the contribution from acquisitions.

It transpires that Halma has done little more than tread water, in profit terms, over the past five years. Turnover has improved but profit margins have narrowed and in consequence the earnings position has remained about static. The share price is also in broadly the same place as this time in 1998.

Of course the profits of many companies have gone backwards in the past five years and shares have followed them south. Halma also serves a set of markets where demand is predominantly driven by safety, health or environmental regulations. To an extent, therefore, the company is protected from the worst effects of the worldwide economic slowdown. Halma has also reported impressive improvements in the rate of return on capital and is cash-generative and ungeared.

Halma has also courted investor popularity because it has delivered handsome increases in the annual dividend. It has a reputation for being one of the most consistently good long-term performers in this regard and until recently had a name for giving rises of 15 per cent.

Last year’s dividend rose 10 per cent and the same sort of growth is expected this year. That remains a handsome rate of progress, but the fear is that without profits advances income growth could slow further. The dividend is only 1.4 times covered by earnings at present. Sell.

Domino Printing Sciences

DOMINO Printing Sciences carries a fancy sounding name for a company that is essentially an engineer. But Domino does occupy markets that possess better than average growth prospects.

It makes machines that print barcodes, sell-by dates and other materials that allow specific things or products to be identified. Barcodes are a boon for retailers because they make the purchase process easier and more accurate. The growth in concern about food safety issues bolsters demand for sell-by date information. Meanwhile the need of manufacturers to be able to trace individual products means that Domino can look forward to gaining plenty of business from customers in a wide range of industries.

The worldwide economic slowdown is exerting a negative influence on Domino, especially in France and Germany, where companies are pulling back on capital investment of all types. But Domino reports resilient trading in North America and its Asian operations are growing strongly.

Moreover, 58 per cent of its group-wide business comes in after-sales service and supplies. This reduces Domino’s exposure to customers’ varying appetite for new equipment. Since after-sales service and supplies generate higher margins of profitability, it also helps the earnings position.

Like Halma, Domino’s shares trade at a premium to the average for its sector. But the growth prospects appear clearer and more promising. Domino also gave shareholders a 15 per cent rise in the dividend income last year.

Confidence that more increases of this sort could come is bolstered by the fact that the payment is 2.5 times covered by earnings per share. Buy.

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